Low pay and progression in
London and the UK
Tony Wilson
Laura Gardiner
Kris Krasnowski
October 2013
A report commissioned from the Centre for Economic and
Social Inclusion by Trust for London
Trust for London is the largest independent charitable foundation funding work which tackles poverty and inequality in the capital. It supports work providing greater insights into the root causes of London’s social problems and how they can be overcome; activities which help people improve their lives; and work empowering Londoners to influence and change policy, practice and public attitudes.
Trust for London, 6 Middle Street, London EC1A 7PH Tel: 020 7606 6145
Email: [email protected]
Website: www.trustforlondon.org.uk
About the Centre for Economic and Social Inclusion
The Centre for Economic and Social Inclusion (known as Inclusion) is the UK’s leading not for profit company dedicated to tackling disadvantage and promoting social
inclusion in the labour market. Inclusion delivers cutting edge research and develops new approaches to policy in a range of areas including employment and skills, welfare to work, regeneration, and social exclusion.
Inclusion also organises and manages events including conferences and training, and publishes policy e-briefings and the magazine ‘Working Brief’.
Inclusion, Third Floor, 89 Albert Embankment, London SE1 7TP
Tel: 020 7582 7221 Email: [email protected]
whose support this project would not have been possible. This project has enabled us to speak to a wide range of providers, policy makers, experts and Londoners, which has helped to shape our thinking and steer our analysis. In particular, we would like to thank staff at RCT Homes, Renovo, pwc and Stafforce for their participation in case study interviews. Finally we would like to thank Paul Bivand, Lydia Finnegan, Callum Miller and Lauren Small from the Centre for Economic and Social Inclusion for their invaluable contributions to the research and analysis presented here.
About the authors
Tony Wilson is Policy Director at Inclusion. He leads Inclusion’s policy work and has particular expertise in the design and delivery of employment and skills support; youth employment and benefit reform. Tony has more than 10 years’ experience of policy and research, project management and delivery across a range of roles in HM Treasury, the Department for Work and Pensions and Jobcentre Plus.
Laura Gardiner is a Senior Researcher at Inclusion. She conducts and manages research and analysis across a range employment and welfare policy areas, with particular interest in social housing, youth employment, and welfare to work
programmes. Laura has recently completed a secondment at Nesta, the UK’s innovation foundation.
Kris Krasnowski is Director for London at Inclusion. He has 10 years’ experience of policy and strategy development, project management and delivery across a range of roles in local and central government, including working for the Mayor of London, HM Treasury and the Department for Work and Pensions. Kris is currently on secondment at the Cabinet Office.
Executive summary ... 5
1 Introduction ... 12
2 Defining low pay and progression ... 19
3 Understanding low pay and progression ... 25
4 Low pay and progression – the front line view ... 49
5 Breaking the cycle ... 63
6 Conclusions and recommendations ... 75
Executive summary
The headline recovery in the jobs market disguises four key social and economic challenges. Earnings have fallen, by 8.5% in real terms since 2009. Living standards among middle and low income families have stagnated. Working poverty is increasing – with a majority of poor people now in working households. And job insecurity is up, with more than two million people in involuntary
temporary or part-time work (a figure which has doubled since 2006).
Much of the recent debate on addressing these issues has focused on whether, and how quickly, to increase the National Minimum Wage. This is important, but can only be one part of the answer – we need also to understand why those in low pay do not progress, and what more can be done to improve job retention, pay and progression.
Ensuring that our employment and skills systems better join up to support retention and progression is arguably more important now than at any point in the last two decades. It is also critical because improving progression will be central to delivering the government’s ambitions on social mobility and welfare reform, and in particular Universal Credit – where up to 1.2 million people who are in work and on the lowest earnings will be expected to ‘do more’ to increase their hours or earnings.
This report combines both quantitative and qualitative research, exploring the extent of low-paid work, the barriers to progression, ‘what works’ in supporting
progression, and how policy and delivery could be improved in the future. This report has a particular focus on low pay and progression in London. This London focus is important because many of the challenges set out above are particularly acute in the capital. In London you are more likely to be rich, but also more likely to be poor, than anywhere else in the country. Ensuring that we act to address these challenges in London is of paramount importance if we are to help future growth to become more equally shared.
Understanding low pay and progression
Labour market structure is a key driver of low pay and limited progression at the bottom of the labour market. Increased job polarisation, between ‘lovely and lousy’ jobs, has been at its most extreme in London, and workers in London face additional challenges with housing, transport, childcare and under-employment.
Our analysis finds that:
21% of London workers – or 625,000 people – are paid below the London Living Wage; while
25% of workers outside London – 5.9 million people – are paid below the Living Wage.1
Looking at the fourteen occupations where a majority of staff are paid below the London Living Wage, just two have had above average pay growth in the last five years – and these two were the lowest paid occupations of all. So the lowest paid are also falling further behind.
Looking at transitions into and out of work, our analysis finds that 55% of the non-student adult population are secure workers, in paid work and earning above a Living Wage. However large numbers of people have been ‘stuck’ in low pay for a year or more – 571,000 Londoners (14% of the non-student population) and 5.4 million people across the UK as a whole (17%). Added to this, a further 1.2 million people nationally, 164,000 in London, may be at risk of cycling between work and low pay. This risk of cycling appears to be greatest for young people and those without qualifications.
Focusing in on wage progression, the average hourly wage growth for those starting in low pay is significantly higher than it is for the population as a whole – with median hourly wage growth in both London and the UK of 10% for the low-paid, compared with only 3.9% in London and 2.9% in the UK for workers overall. Wage progression for those in low pay is possible even when the economy and labour market is relatively weak.
However, a sizeable proportion of low-paid workers see annual increases in hourly pay of less than the national median. The position for low-paid Londoners worsened substantially during the recession, but has returned to pre-downturn levels since, whereas the position of low-paid people in the country as a whole has remained virtually unchanged. On the latest data, 28% of low-paid Londoners experienced hourly wage growth of less than the national median compared with 33% of the population as a whole.
Our analysis also finds that low-paid workers that change jobs see far greater wage progression than those that do not, while low-paid staff that received training on the job see significantly higher wage progression than those that did not. While
1 Note that the London Living Wage and the UK Living Wage are used in this report as proxies for low pay in London and the rest of the UK respectively
these are important findings, they should also be treated with caution: part of this may be that those low-paid staff that move jobs or receive training are more likely to be in occupations and sectors with better progression prospects.
The factors that affect retention and progression are complex and encompass both
individual and employer factors. How these interplay is complex – with
aspirations and motivations, qualifications, caring responsibilities, networks, job roles and employer quality all seeming to play a part.
The gains from getting this right are potentially significant. We estimate that supporting progression from National Minimum Wage to Living Wages for lower income households would lead to net gains to the Exchequer of around £2.8 billion a year.
Measuring progression
A ‘basket of indicators’ for measuring progression could comprise ‘core’ and ‘non-core’ measures. Core measures could include both income and non-income based measures. Income based indicators could comprise:
Hourly wage progression – for example based on an increase in hourly wages that is greater than median annual wage growth;
Earnings progression – defined as an increase in total weekly earnings that is greater than median earnings growth (which could include working more hours). Non-income-based core measures could include:
Movement from insecure to secure employment – for example from temporary to permanent employment;
Socio-economic progression – e.g. an increase in social economic status.
Non-core progression indicators could include:
Greater occupational responsibility: Either in the form of greater autonomy at work or in management responsibility;
Skills progression: Increase in qualification level or skills acquisition related to job or occupations. Importantly, this measure should be closely associated with wages or greater occupational responsibility.
The government should consult on the selection of indicators, and on the balance or weighting between them in measuring progression.
Views from the front line
We surveyed 100 active practitioners in the employment and skills fields and followed up with 30 semi-structured interviews.
Our research suggests that a wide range of service provision is offered by different providers, but that this is not always explicitly aligned to delivering either job
retention or progression. Looking to the future, most providers intended to do more to join up and align support; make services more personalised; and make greater use of technology. While these changes would be likely to improve the quality of service for those receiving support, they are also relatively modest. This likely reflects both the relative low priority attached to retention and progression by programme commissioners but also the limits on innovation and testing within employment and skills programmes.
We also conducted two focus groups with unemployed people and those in low-paid, ‘vulnerable’ employment. Two key factors informed respondents’ views on
employment and progression: their aspirations and their opportunities.
On aspiration, the majority of participants currently or had previously worked in jobs with low levels of responsibility, and were relatively satisfied with this.
Progression was not a priority when looking for work. For a smaller group of participants, opportunity was a critical factor. They were interested, but felt that the industries they worked in were not conducive to progression. Other barriers to taking up progression opportunities included a lack of flexibility that came with moving up, not feeling ‘ready’ to progress and a sense that progression was not warranted as there was no intention to stay in the industry.
People considered that increased salary was the most important benefit from progression, with confidence, satisfaction and job security also seen as key positives. The main downside was seen as stress, with a number of ‘grey areas’ around increased responsibility, changed relationships and higher expectations – with these being the price paid for more pay and security. Much of the support that individuals wanted, however, was around things that ‘good’ employers take for granted – like regular appraisals, opportunities to network, and getting support and encouragement from managers.
Breaking the cycle – what works
As noted, the two key factors affecting progression that are within our control are around the individual and the employer.
At individual level, there have been relatively few attempts to develop programmes to support people to progress in work, so as a consequence there is limited evidence on what forms of support are most effective. However what work there has been points to the importance of effective case management, training support and financial incentives.
Looking at employers that progress staff, there is useful recent evidence on their practices which provides pointers on what employer approaches are most likely to support progression. In particular, this identifies a series of ‘enablers’ for low-paid staff within companies. These can broadly be grouped into three:
Management and support systems – including commitment from senior managers and staff and good HR processes;
Staff culture and behaviour – including clear understanding among employees and peer support; and
Company factors – relating to growth and size.
As part of this project, we looked in depth at four current or recent case studies of good practice in the UK. These reflect, broadly, four stages in supporting retention and progression:
Supporting those out of work to move into sustainable, new opportunities – focusing on key employability and transferable skills;
Supporting individuals in work to stay there – through highly accessible and personalised adviser support through multiple platforms;
Supporting employers to retain and grow their businesses – with a ‘business to business’ model to build HR capability and training within a sector; and
Building career ladders and structures within an industry – supporting the recognition and accreditation of skills.
In summary, then, there is enough evidence to draw conclusions on what may work in supporting retention and progression.
Supporting people to stick and then stay in work by getting the job match right, personalising support, and really focusing on supporting people through the transition to work.
Supporting people to progress in work by personalising support to the individual’s needs – based on supporting people to set and develop their career goals,
maintain momentum, and find and access the support that they need. Job-related training and financial incentives appear to play an important role.
Providing the right (business to business) support to employers to grow their workforce and their business – including by investing in management, HR and training; by supporting staff to access opportunities and to develop peer networks; and by building a stronger ethos around progression, particularly at senior levels. However some employers will be too small, poorly performing or simply unwilling to take steps to support their staff to progress. In these cases progression would seem more likely by moving out rather than moving up.
Recommendations
Drawing this together, we recommend as immediate priorities:
1 The government and providers of employment and skills support should work together to develop an evidence-based, best practice toolkit for supporting retention and progression in employment programmes – based around a ‘Stick, Stay, Progress’ model.
2 Jobcentre Plus success should be measured against the time that those leaving benefit spend off benefit, in addition to the current measure of leaving benefit within twelve months. In the medium term, success should be measured in terms of time spent in employment after exiting benefit.
3 Work Programme providers and government should work together to promote best practice on supporting retention and progression – in particular through the new Work Programme Best Practice Group
4 The £2 billion Adult Skills Budget should be unlocked to support progression. Eligibility for full funding for Level 2 training should be extended to all Work Programme participants – so that those in work can access workplace training. 5 Eligibility for full funding for Level 2 training should also be extended to those in
work and identified as most at risk of low pay and poor progression – including those with no qualifications, lone parents, young people, disabled people and those working in low paying occupations and sectors.
In the longer term, we recommend:
6 The government should establish an ‘open source’ Innovation Fund to rigorously test new approaches to improving retention and progression, evaluate them and share the results widely.
7 The government should identify and consult on a ‘basket of indicators’ for measuring progression in the economy and programmes.
8 The Universal Credit Claimant Commitment should include a ‘Progression Pact’ – setting out both expectations for increasing incomes in-work and the additional support that claimants will receive.
9 National and local commissioners should start the process of developing a new employment and skills model – ‘Employment Plus’ – that combines support to find work, stay in work and progress in work. Rather than following traditional top-down procurement, government should look to co-commission or devolve: aligning and integrating funding streams and support. This ‘Employment Plus’ approach should also be incorporated into any successor to the Work Programme – with clear incentives to support progression as well as retention.
And in London, we recommend:
10London should develop its own framework to test and evaluate progression, seeking providers to test different components of progression within existing contracts as well as its own programmes.
11London should take the lead in developing the ‘Employment Plus’ model – with as a starting point, Jobcentre Plus developing a ‘Super Adviser’ pilot to test
1
Introduction
Britain is working. Despite the deepest recession in a lifetime and a period of prolonged low growth, employment is at record levels. Indeed since 2008, while output has fallen by nearly 3% both employment and total hours worked have actually increased. Behind this headline success story, however, there are a number of challenges. Earnings have fallen, living standards have stagnated, and working poverty is increasing alongside job insecurity.
Many of these problems have their roots in the last three decades but have reached a head over the last five years. They suggest that it is no longer enough for policy simply to focus on getting more and more of the population into work. We must also do more to support people first to stay in work, and then to increase their earnings and progress in work.
Much of the recent debate on tackling low pay has focused on whether, and how quickly, to increase the National Minimum Wage.2 This is important, but can only be
one part of the answer – we need also to understand why those in low pay do not progress, and what more can be done to improve job retention, pay and progression for those most at risk. This report seeks to out the evidence on the scale of the challenges facing us, a framework for understanding job retention and progression, and proposals for how we can support more people to stay and to progress in work.
1.1
Behind the headlines
The headline employment figures disguise four key social and economic challenges for the country: around earnings and productivity, living standards, working poverty and insecurity. They are taken in turn below.
First, the strong jobs figures since the onset of recession have largely been achieved at the expense of lower earnings. In real terms, earnings have fallen by 8.5% since 20093 – a fall unprecedented in modern times. More people are working but for less
pay. In many ways this reflects the increasing flexibility of the labour market – with both workers and employers better able to share the pain of recession than in
2 See for example ‘Liberal Democrats push for minimum wage increase’, The Guardian, 14 September 2013 ( http://www.theguardian.com/politics/2013/sep/13/liberal-democrats-push-minimum-wage-increase) accessed 26 September 2013
3 Source: Regional Economic Analysis, Changes in real earnings in the UK and London, 2002 to 2012; Office for National Statistics, February 2013
previous downturns. But it also means that the UK is becoming less productive: we are producing less with broadly the same sized workforce.4
Secondly, this wage squeeze, when coupled with household living costs that are rising faster than the rate of inflation,5 means that living standards have stuck and
in recent years may have started falling. This squeeze on living standards is not just a product of the recession – as the Resolution Foundation has shown, living
standards for those on middle and low incomes began to stagnate in the mid 2000s.6
Thirdly, following on from this, the squeeze on living standards has been felt most sharply among those on the lowest incomes. Although child poverty and particularly poverty among pensioners have shown some improvements in recent years, both poverty and inequality among working age adults have risen rapidly. This rise has also seen the return of a problem last witnessed a lifetime ago: of widespread in-work poverty. For the first time, in 2010-11, a majority of people living in poverty were in households where somebody worked (4.1 million adults and 2.1 million children).7 This figure has grown by more than one million in the last five years,
while poverty among households where no one works has remained constant. The same pattern holds in London.8 Work is important in lifting people out of poverty,
but increasingly it cannot be guaranteed to do so.
Finally, while an increasingly flexible labour market may have helped to deliver near record levels of employment, it has also led to insecurity in employment. This in turn has led to concerns of a ‘low pay, no pay’ cycle with some workers trapped between low-paid, insecure work and periods out of work.9 This growth in insecurity
is most noticeable in the number of part-time and temporary employees who cannot find full-time work – there are now more than two million of these involuntary
temporary or part-time workers, a figure that has doubled since 2006.10
Drawing these together, then, it is clear that flexible labour markets and support to find work are no longer enough on their own to ensure a decent standard of living.
4 Hughes, A. and Saleheen, J. (2012) ‘UK labour productivity since the onset of the crisis — an international and historical perspective’, Bank of England Quarterly Bulletin 2012 Q2
5 For example, the Joseph Rowntree Foundation has found that over the past decade, minimum household budgets have risen by 45 per cent, against a 30 per cent increase in the Consumer Price Index rate of inflation: Hirsch, D. (2013) A minimum income standard for the UK in 2013, Joseph Rowntree Foundation
6 Whittaker, M. (2013) Squeezed Britain 2013, Resolution Foundation
7 Source: Households Below Average Income, Department for Work and Pensions
8 MacInnes, T., Parekh, A. and Kenway, P. (2011) London’s Poverty Profile, Trust for London and New Policy Institute
9 See for example Shildrick, T., MacDonald, R., Webster, C. and Garthwaite, K. (2010) The low-pay,
no-pay cycle: Understanding recurrent poverty, Joseph Rowntree Foundation 10 Source: Labour Force Survey, Office for National Statistics
If we are to tackle the ‘low-pay, no pay’ cycle, address working poverty, raise living standards and build a more productive economy, we must do more to support people first to stay in work and then to progress in work.
1.2
The response (so far)
For successive governments, labour market policy has been built on four pillars:
Building a flexible labour market – by making it easier for employers to take people on and to let them go, underpinned with clear minimum standards;
Improving incentives to work – by reducing the real value of out of work benefits, subsidising low-paid work through tax credits, and maintaining a pay ‘floor’ through the National Minimum Wage;
Increasing the support for, and requirements on, those who are out of work – first with ‘Restart’ interviews for the long-term unemployed in 1986, then the introduction of Jobseeker’s Allowance in 1996, and in the last decade through the New Deals, Pathways to Work and now the Work Programme – with an increasingly sanctions-backed regime of benefit conditionality; and
Improving the skills of the workforce – where the last two decades have seen near-permanent reform with Training and Enterprise Councils, the Learning and Skills Council, Individual Learner Accounts, Train to Gain and a plethora of programmes and funding streams coming and going.
However, governments have struggled to deliver a coherent approach across these four pillars. This has not always been for the want of trying: as early as 2003 the previous government began testing an ‘Employment Retention and Advancement’ (ERA) demonstration project to support people to stay and progress in work (set out in more detail in Chapter 5); in 2006 the wide-ranging review of skills by Lord Leitch called for an integrated employment and skills service ‘to increase sustainable
employment and progression’;11 and in more recent years, contracted-out
employment programmes (in particular the Work Programme) have rewarded providers for sustained employment rather than just job entry.
Despite these small steps, however, progress has repeatedly stalled – with the ERA demonstration ending in 2008, trials of an integrated employment and skills service finally abandoned in 2010, and neither employment services nor training providers
11 Leitch Review of Skills (2006) Prosperity for all in the global economy - world class skills, HM Treasury
currently assessed on their success in achieving sustained employment with progression.
As a result, support for those out of work remains largely focused on getting people into any available job (the so-called ‘work first’ approach); addressing low pay has focused on the level of the National Minimum Wage; and support to up-skill has often focused on raising qualification levels rather than meeting job-specific needs.
1.3
Delivering social mobility and welfare reform
Ensuring that our employment and skills systems better join up to support retention and progression is arguably more important now than at any point in the last two decades. In part, this is because of the four key labour market challenges set out above. But it is also critical now because improving progression will be central to delivering the government’s ambitions on social mobility and welfare reform, as well as its commitment to eradicate child poverty by 2020.
1.3.1
Social mobility
On social mobility, the government has set out its objectives for improving inter-generational mobility – that is, ensuring that children have better opportunities and outcomes than their parents. This has included commitments to measure progress against new ‘leading indicators’ from early years through to adulthood.12
As part of this work, the government has introduced a new measure of labour market progression: the proportion of the lowest earners (defined as those in the bottom 20% of earners at age 25-30) who experience wage progression over the course of a decade (defined as being 20 percentiles or higher in the earnings distribution at age 34-39). This is based on data from the Annual Survey of Hours and Earnings.13
While this commitment to measuring progression is welcome, the most recent available data is already out of date (covering progression between 1997-98 and 2007-08) and cannot be linked to any programme interventions or activity. Driving improvements in progression will require new ways to monitor progress and
measure success.
12 HM Government (2011) Opening Doors, Breaking Barriers: A Strategy for Social Mobility, Deputy Prime Minister’s Office
1.3.2
Welfare reform and Universal Credit
Delivering progression is also central to ensuring that welfare reform leads to more people in more and better work. The government’s programme of reforms is the most far-reaching since the foundation of the modern welfare state: with
changes across all of the main benefits affecting eligibility, levels of entitlement and how benefits are managed and delivered, and delivering savings of up to one fifth of the adult benefits budget.
Recent research by Inclusion has estimated that three fifths of all households that receive benefit have at least one adult in work – and that three fifths of the cash impact of the government’s welfare reforms will fall on working households.14 So households on benefit are more likely than not to be in work, and will bear the larger burden of cuts to social security.
At the heart of the government’s future reforms is the introduction of Universal Credit, which will replace a complex system of in-work and out of work support with a single benefit with a single set of rules.
A key feature of Universal Credit is that it will introduce a single system of disregards – the amount of extra income that those on Universal Credit can receive before their award starts to be reduced – and a single taper – the rate at which Universal Credit is then reduced as income increases. In the current system, by contrast, disregards can vary from nothing at all to several thousand pounds a year, while tapers are varied and often overlapping.
Universal Credit means that, in most cases, people moving into work on low pay will keep more of their income from benefits than is the case in the current system. However, the government has also set out, for the first time, that those who are in work and on the lowest earnings should be expected to ‘do more’ to increase their hours or earnings. This so-called ‘working, could do more’ group will encompass all of those who earn below an earnings threshold of up to £221 per week for
individuals or £442 per week for couple households (equivalent to 35 hours per week at the National Minimum Wage – with the threshold reduced for those who cannot reasonably be expected to work full time due to caring or health reasons). The Resolution Foundation estimates that 1.16 million people will be in this ‘working could do more’ group, and could be subject to requirements to increase their hours
14 Wilson, T., Morgan, G. Rahman, A. and Vaid, L. (2013) The Local Impacts of Welfare Reform: An
and earnings. However, as this report will show, there is limited evidence on ‘what works’ in supporting people who are in low pay to progress in work – so the
government will face significant challenges in getting the support and the
requirements right. The Department for Work and Pensions (DWP) issued a Call for Ideas on how to support this group to progress, which generated a range of ideas around advice and support services to up-skill claimants, supporting the
identification and generation of progression opportunities, raising motivation, self-employment support, and addressing barriers to work.16 This paper sets out in more
detail a view of the evidence, what works, and recommendations for reform.
1.4
This report
This report, then, is a mixed methods study into low pay and progression in the labour market. It combines both quantitative and qualitative research, exploring the extent of low-paid work, the barriers to progression, ‘what works’ in supporting progression, and how policy and delivery could be improved in the future. In particular it draws on a survey of 100 practitioners and experts followed up with thirty in-depth interviews, focus groups with unemployed and vulnerably employed people, and a number of in-depth case studies of current approaches to support retention and progression.
1.4.1
Report structure
The remainder of this report is structured across five chapters. Chapter 2 sets out to define low pay and progression. Chapter 3 then maps low pay and progression in London and across the UK today. In Chapter 4 we summarise current views on tackling low pay and progression among practitioners and individuals, before setting out in Chapter 5 the evidence on what works from approaches taken in the UK and overseas. Chapter 6 then brings together these strands with a series of
recommendations on how to support those in low pay to progress in work, both in London and the UK.
1.4.2
A focus on London
This report has a particular focus on low pay and progression in London, but also presents the evidence and makes recommendations for the UK as a whole.
15 Pennycook, M. and Whittaker, M. (2012) Conditions Uncertain: Assessing the implications of
Universal Credit in-work conditionality, Resolution Foundation 16 DWP (2013) Extending labour market interventions to in-work
This London focus is important because many of the challenges set out above are particularly acute in the capital. On the one hand, London is the most prosperous city region in the UK, accounting for more than one-fifth of national Gross Value Added. On the other, poverty is on the rise. In London you are more likely to be rich, but also more likely to be poor, than anywhere else in the country.
Ensuring that we act to address these challenges in London is of paramount importance if we are to help future growth to become more equally shared.
2
Defining low pay and
progression
2.1
Defining low pay
There is no single definition of low pay, either in the UK or internationally. A range of measures have been used to define low pay, including:
The National Minimum Wage (NMW). This was introduced in 1998. The first UK NMW rates for adults (21 years and over) and for young people (18-20 years) were £3.60 per hour and £3.00 per hour respectively.17 The Low Pay Commission, comprised of representatives of employers and trade unions as well as labour market experts, advises on NMW rates. Its brief is not to tackle low pay but to monitor, evaluate and review the NMW and its impact. Current rates (1 October 2013) are:
£6.31 per hour for workers above 21 years of age;
£5.03 per hour for 18-20 year olds;
£3.72 per hour for 16-17 year olds; and
£2.68 per hour for apprenticeships.
The threshold for being subject to ‘in-work conditionality’ Universal Credit is based on NMW – with those earning less than the equivalent of a full-time wage on NMW being expected to do more to increase their earnings (except where they have caring responsibilities or a work-limiting disability or health condition).
Relative to the median wage. The literature on measuring low pay tends to favour the use of relative measures – comparing pay against other wages within that labour market. Defining low pay against a benchmark of two-thirds of median earnings is most commonly used (including by the OECD and European
Commission18). In their analysis, the Resolution Foundation estimates the low pay
17 Low Pay Commission (1998) The National Minimum Wage: First Report of the Low Pay Commission
18 For instance, see the OECD Employment Outlook (
www.oecd.org/employment/outlook) and the European Commission’s Earnings Statistics
(http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Earnings_statistics) – both accessed 26 September 2013
threshold on this measure to be £7.49 per hour – equivalent to gross earnings of £13,600 a year for a 35 hour working week.19
A Living Wage threshold. Since the mid-1990s, low pay has also started to be defined against living costs – and specifically the income needed to meet the living standards considered as acceptable by society. This type of definition is useful in determining the relationship between wages and poverty.
In London, the London Living Wage (LLW) has gained traction through local campaigns and high profile support – within business and from successive London Mayors. Itis a voluntary measure, calculated taking the average of two approaches: one based on ‘basic living costs’ and the other on the ‘income distribution’. The first approach, developed by the Family Budget Unit,
estimates a low-cost but acceptable budget for a selection of households and calculates the income required to meet these costs. The second approach takes 60% of the median income for London. The resulting income is then converted to an hourly wage that takes account of individuals claiming all the welfare benefits that they are entitled to, and a 15% margin is added to protect against unforeseen circumstances.20 The current London Living Wage is £8.55 per hour.
Using a similar methodology to that in London, the University of Loughborough has devised a UK Living Wage (excluding London) drawing on a survey of the general public to define what goods were necessary for a minimum standard of living and combing this with estimates for the costs of rent, council tax and childcare costs excluding London.21 Using this methodology the current UK Living Wage is £7.45 per hour.
A Minimum Income Standard (MIS).Building on the Living Wage approach, a UK Minimum Income Standard has been devised to capture what the public feels to be an acceptable standard of living in the UK. This estimates that a single person in the UK would need to earn at least £16,850 before tax in order to reach the MIS.22 This translates to an hourly rate of £8.62 per hour for a 37.5
hour week. The study also estimates minimum income standards for a family with two children. Based on this methodology each parent would need to earn at
19 Pennycook, M. and Whittaker, M. (2012) Low Pay Britain 2012, Resolution Foundation 20 GLA (2012) A Fairer London: the 2012 Living Wage in London, Greater London Authority Economics, Living Wage Unit
21 Hirsch, D. and Moore, R. (2011) The Living Wage in the United Kingdom: Building on success, Citizens UK, Centre for Research in Social Policy and Living Wage Foundation
least £19,400 before tax to support themselves and two children – equivalent to
£9.91 per hour for a 37.5 hour week.23
To summarise, then, studies suggest that a ‘living wage’ of around £7.45-7.50 per hour, rising to £8.55 per hour in London, is just enough to afford a low cost but acceptable budget. It is also broadly in line with two thirds of the average (median) hourly wage. However when asked, the public would consider that an acceptable minimum income is some way above this – and is higher still for families with children, rising to nearly £10 an hour for two full-time, working parents.
Under Universal Credit, the government’s focus for support will be solely on those earning less than the equivalent of the National Minimum Wage for 35 hours a week. NMW is already 15–36% below these measures of low pay – so the focus in Universal Credit will be on the very lowest paid in part-time work.
Part-time work is an important dimension in considerations of low pay. A relatively large proportion of the UK workforce are in part-time employment – 25% compared with an OECD average of 17%24 – and part-time workers are more likely to have
caring responsibilities and disability,25 which increase the costs of living. It is
important therefore that measures of low pay focus on total earnings as well as hourly rates.
Box 2.1 Individual perspectives of low pay
We explored attitudes to low pay among unemployed people and vulnerable workers in two focus groups. Views of what constituted low pay were strongly shaped by personal responsibilities, and in particular supporting dependents. A common theme was having ‘enough’ money to support yourself and your family, be this from work or from benefits and tax credits. Participants were not concerned about losing benefits by moving into work, as long as wages were high enough to maintain a reasonable level of income.
‘If you are at a good enough level to still have the stuff you want you may not need [benefits]. It depends what the job offers.’ (Female, unemployed)
23 Hirsch, D. (2013) A minimum income standard for the UK in 2013, Joseph Rowntree Foundation 24 In 2012, based on a common OECD definition of part-time work of below 30 hours per week. Source: Labour Force Statistics, Office for National Statistics
In this report, we have decided to use the Living Wage definitions for low pay – as these most closely capture differences between London and the rest of the UK and recognise the relationship between pay and living standards.
Therefore we define low pay as hourly earnings below £8.55 in London and £7.45 in the rest of the UK.
2.2
Defining progression
As with low pay, there is no single definition of labour market or job progression. Typically, measures of progression focus on one of three things:
Changes in earnings – be that from increases in hourly pay or from increases in the number of hours worked;
Changes in social status – which is usually measured in relation to occupation and employment status; and,
Changes in skills –specifically, increased qualifications.
These three measures are closely linked: higher qualifications can bring higher earnings in jobs with more responsibility and social status.
Earnings data is collected through a number of surveys26 – in particular the Annual
Survey of Hours and Earnings, which samples 1% of all PAYE employees, and the Labour Force Survey, a continuous quarterly survey of households.
Changes in social status (that is, social mobility) are usually measured according to the National Statistics Socio-economic Classification (NS-SEC).27 This uses a
combination of occupation and employment status to classify households into one of eight socio-economic groups. It is intended to locate households according to their level of authority and control, income, economic security and prospects for
advancement. The NS-SEC is reported through a number of survey sources including the Census, the Labour Force Survey and the British Household Panel Survey. The eight NS-SEC groups, or ‘Analytic Classes’, are set out below.
26 Ormerod, C. (2006) ‘Earnings data: a brief guide to sources and outputs’, Labour Market Trends Volume 114 No. 11, Office for National Statistics
27 Rose, D. and Pevalin, D. (2003) A Researcher’s Guide to the National Statistics Socio-economic
Table 2.1: NS-SEC Analytic Classes
1 Higher managerial, administrative and professional occupations
1.1 Large employers and higher managerial and administrative occupations 1.2 Higher professional occupations
2 Lower managerial, administrative and professional occupations 3 Intermediate occupations
4 Small employers and own account workers 5 Lower supervisory and technical occupations 6 Semi-routine occupations
7 Routine occupations
8 Never worked and long-term unemployed
Source: Office for National Statistics
Progression between social classes is also clearly associated with career progression – rising up the ladder, taking on more responsibility and operating with more
autonomy and control.28 This can be thought of in terms of progressing within a firm
or by moving from one firm to another.
Box 2.2 Individual perceptions of retention and progression
Our focus groups with unemployed people and low-paid vulnerable workers also explored perceptions of job retention and progression. These are summarised below.
Job retention was cited as a key objective. Unsurprisingly, people felt that jobs were less secure now than in the past. For a number of participants, job security meant receiving minimum term contracts from employers. Participants also felt that job security increased as an individual progressed in work.
‘When you say security, that means giving you a contract to sign and they give you the job for a year or something.’ (Male, employed)
Participants felt that the key indicators of progression were increased earnings and more responsibility. Many participants felt that low-paid work in high turnover
occupations did not offer opportunities for career development and progression. The benefits of progression included improved confidence, experience and skills. However a number of downsides were identified – in particularincreased hours,
stress and pressure. This would be enough to put off some people, unless there were commensurate increases in pay, job quality and security.
Company loyalty was not seen as an important factor in progression – in fact, many felt that staying in the same place for too long could act as a barrier to progression. There was a recognition that progression opportunities increased in line with years of service, however one to three years was considered to be the optimum time period to stay with one employer.
‘Before, it was a good thing to say ‘I’ve stayed in my job this long’ and then
progressed within the job. But now we’re doing so many different things, we don’t want to tie ourselves to one job like we did before.’ (Male, employed)
Drawing this together, in this research we have focused on progression as defined by increases in hourly wages – and specifically increases above median average wage growth. Where appropriate, we have also analysed changes in social status. We also propose, in our recommendations (Chapter 6), a basket of indicators for future measures of progression.
3
Understanding low pay and
progression
There has been a wealth of research that maps aspects of retention and
advancement in the labour market.29 The analysis in this chapter seeks to focus in on moves into and out of low-paid employment, and progression from low pay, where research suggests that job retention and progression are much less likely.30 This chapter also seeks to understand how these issues affect different groups, occupations, industries and geographies, and the extent to which certain labour market transitions increase the chances of advancement.
3.1
The UK and London labour markets
3.1.1
Employment
Both the UK and London labour markets have remained relatively buoyant given the underperformance of the economy in recent years. London’s employment rate is 70.5%, 1.1 percentage points below that of the UK average of 71.6%. In fact London’s employment rate has trailed the UK’s for more than two decades despite London leading UK job growth in the years leading up to the 2008 recession.31
29 For example, see Johnson, A. (2002) Job retention and advancement in employment: Review of
research evidence, Department for Work and Pensions In-House Report 98; and Devins, D., Bickerstaffe, T., Nunn, A. and Mitchell, B. (2011) The role of skills from worklessness to sustainable employment with progression, UK Commission for Employment and Skills Evidence Report 38 30 For example, see Hakeney, S., Neale, I., Casey, P. and Neat, S. (2009) Staying in, moving up:
Employment retention and progression in London, London Development Agency, Labour Market Research Series 01
31 LDA (2010) Destinations 2020: Employment projections across sectors and occupations in London (2010) London Development Agency, Labour Market Research Series 02
Figure 3.1: Working-age employment rates in London and the UK (%)
Source: Labour Force Survey, Office for National Statistics
London’s underperformance is driven by a series of complex interdependencies, including:32
Demographics. London has a higher proportion of the working age population experiencing labour market disadvantage;
Intense competition for jobs. London attracts talent from across the UK and internationally, many of whom are happy to compete for entry level vacancies. This results in intense competition and some Londoners being ‘crowded out’ of the entry level labour market; and,
Weaker work incentives and support. The high cost of living and working in London reduces the gains from employment, especially for those working in part-time or low-paid jobs and those with children. In addition, programmes designed to help people find work have been less effective in London relative to the rest of the UK – compounded by higher costs of delivery and tougher labour market competition.
32 Krasnowski, K. and Vaid, L. (2012) Right Skills, Right Jobs: An audit of employment and skills
provision in London, Greater London Authority 60 62 64 66 68 70 72 74 London UK
3.1.2
Low pay
The labour market structure is cited as one of the key drivers of low pay and limited progression opportunities at the bottom of the labour market in the UK. Globalisation and technological change have altered the structure of the labour market and led to job polarisation – the growth in high-skilled and low-skilled jobs and a contraction in intermediate level employment that some have described as the choice between ‘lovely and lousy’ jobs.33
Within the UK labour market, polarisation and structural change have been at their most extreme in London.34 Workers in London also face additional challenges, with the extremely high cost of housing, transport and childcare making it particularly hard for low-skilled Londoners to be better off in work.35 Difficulties in London are further entrenched by under-employment, as higher skilled workers (from both the UK and abroad) end up working in low-paid jobs whilst waiting for something more suitable to come along.36 An over-supply of skills in the capital and a dearth of mid-level skilled jobs mean that both low- and intermediate-skilled workers are
competing for the same low-skilled, low-paid jobs, which in turn can have a dampening impact on wages and progression prospects.37
We have set out below new analysis of low pay – using the Labour Force Survey to estimate the number of people paid below the Living Wage.38
Our analysis finds that:
21% of London workers – or 625,000 people – are paid below the London Living Wage; while,
33 Goos, M. and Manning, A. (2007) ‘Lousy and Lovely Jobs: The rising polarisation of work in Britain’,
Review of Economics and Statistics 89(1); Holmes, C. and Mayhew, K. (2012) The Changing Shape of the UK Job Market and its Implications for Bottom Half of Earners, Resolution Foundation
34 LDA (2010) Destinations 2020: Employment projections across sectors and occupations in London (2010) London Development Agency, Labour Market Research Series 02
35 Bivand, P. and Krasnowski, K. (2012) Increasing part-time employment in London, Centre for Economic and Social Inclusion and Greater London Authority; Ben-Galim D., Lanning T. and Krasnowski K. (2011) More than a foot in the door: Job sustainability and advancement in London and the UK, Institute for Public Policy Research
36 HM Treasury (2007) Employment Opportunity for All: tackling worklessness in London
37 LDA (2010) Destinations 2020: Employment projections across sectors and occupations in London (2010) London Development Agency, Labour Market Research Series 02
38 £8.55 per hour in London and £7.45 per hour in the rest of the UK. While the London Living Wage has existed since 2005, the non-London Living Wage has only been calculated for 2011 onwards. So for analysis of low pay before 2011 we have indexed the non-London Living Wage against the London Living Wage
25% of workers outside London – 5.9 million people – are paid below the Living Wage.
As Table 3.1 below shows, low pay is particularly prevalent among young people, those with no qualifications and lone parents. For both lone parents and young people, this in part reflects a greater likelihood of being in part-time work (nearly half of those in part-time work are low-paid): 54% of lone parents and 41% of young people work part-time. Lower National Minimum Wage rates for young people may also be driving the prevalence of low pay within this group.
Those from ethnic minorities, disabled people and, to a lesser extent, women are also more likely to be in low-paid work. Older people, interestingly, do not appear to be particularly at risk.
Comparing London and the UK, it is notable that young people are less likely to be in low pay in London than in the UK as a whole (although in roughly similar proportions to the overall difference between London and the UK), while those with no
qualifications are marginally more likely to be in low pay in London than the UK.
Table 3.1: Proportion of those in work earning below the living wage by disadvantaged group, Apr 2012–Mar 2013
London UK Overall 21% 25% 50-64 year olds 22% 22% Females 24% 31% Disabled people 24% 28% BAME groups 29% 31% Lone parents 42% 44% 16-24 year olds 47% 58%
People with no qualifications 54% 52%
Source: Quarterly Labour Force Survey, Office for National Statistics. Analysis is limited to working age people who are not full-time students.
These findings are consistent with other studies, which find that groups including women, part-timers, individuals with low or no qualifications, young people and certain ethnic minority groups (such as Pakistani, Bangladeshi and Black African ethnicities) are more likely to be in low pay.39
In a large part, patterns of low pay reflect job type. To looks at jobs that have low pay, we have first focused on broad industrial groups. Unsurprisingly, low pay is lowest in industries with professional and skilled workforces – finance; health and
39 Devins, D. et al (2011) The Role of Skills from Worklessness to Sustainable Employment with
education; communications; and to a lesser extent construction and manufacturing. However, low pay is far more prevalent in the wider service sector and in hospitality and distribution (where more than half of the workforce is low-paid).
Figure 3.2: Proportion of those in work earning below the living wage by industry, Apr 2012–Mar 2013
Source: Quarterly Labour Force Survey, Office for National Statistics. Analysis is limited to working age people who are not full-time students. Agriculture & fishing and energy & water (and
manufacturing in London) have been excluded due to small sample sizes.
Focusing in on specific occupations, those where people tend to be low-paid are, of course, clustered at the lower end of the labour market – with elementary
administration, routine trades, sales and social care work particularly at risk. Other studies back up these findings – with manufacturing, education, health and social work, business and retail and hospitality identified as sectors particularly at risk of low pay;40 and low-paid occupations including labouring, waiting,
childminding, hairdressing, cleaning, sales and factory work.41
The chart below shows changes in pay and employment over the last five years for a range of low-paid occupations in London. The horizontal axis shows changes in median pay, while the vertical axis shows the change in employee numbers. So those in the top right quadrant had above average pay growth and growing employment, while those in the bottom left saw below average pay growth and falling employment.
40 Cooke, G. and Lawton, K. (2008) Working Out of Poverty: a study of the low-paid and the ‘working
poor’, Institute for Public Policy Research
41 Pennycook, M. (2012) What price a living wage?, Resolution Foundation and Institute for Public Policy Research
0% 10% 20% 30% 40% 50% 60%
Banking, finance & insurance Transport & communication Manufacturing Public admin., education & health Construction Other services Distribution, hotels & restaurants
Figure 3.3: Change in employee numbers and median hourly pay for occupations with median hourly pay below LLW, London, 2006–11
Source: Annual Survey of Hours and Earnings, Office for National Statistics. Occupations with very low numbers of employees have been omitted from this analysis. This chart does not reflect the latest (2012) survey data because this data uses an updated occupational classification, and is therefore not comparable with previous years.
What is immediately apparent from this analysis is that with only two exceptions, the lowest-paying occupations in London have seen below average pay growth over the last five years. So low-paid work has become relatively lower paid. Even for those that have seen above average growth, this may be explained by the growth in the National Minimum Wage (as waiters & waitresses and bar staff are most likely to earn exactly the NMW, and therefore most likely to experience ‘enforced’ wage increases when it is updated annually). At the same time, employment numbers in most of these occupations have grown. Low pay appears to be becoming more prevalent, and more entrenched.
In the UK as a whole, the same analysis leads to a slightly different picture – with generally above average pay growth in the lowest paying occupations but slightly lower employment growth. The pay growth nationally can likely be more directly explained by the National Minimum Wage having a greater ‘bite’ on low-paid occupations outside London.
Bar staff
Waiters & waitresses
Cleaners & domestics Sales & retail
assistants
Retail cashiers & check-out operators Labourers (process
& plant)
Chefs & cooks
Market research interviewers -30% -20% -10% 0% 10% 20% 30% 40% 50% -10% -5% 0% 5% 10% 15% 20% C h a n g e i n e m p lo y e e n u m b e rs
Change in median hourly pay
National median change in pay
3.2
Understanding transitions into and out of
employment and low pay
Focusing on changes in employment rates and pay enables us to compare different snapshots of the labour market at different times. However, this only tells us part of the story: it does not tell us about people’s own experiences over time, and in particular their transitions between unemployment and employment, or low pay and living wages.
So in order to address this, we have used the Labour Force Survey to segment the population who joined the survey in April 2012 and left in March 2013, based on their movements during that time – between being out of work, being in work and in low pay, and being in work but not in low pay.
This longitudinal analysis is set out in the graph below. We have divided the population into four groups:
Stuck out of work: those continuously out of work for their year in the survey – including both those unemployed and those inactive;
At risk of cycling: those who had either become unemployed or moved from unemployment into low-paid work in the previous year42;
Stuck in low pay: those continuously in work and earning below the Living Wage; and
Secure workers: those continuously in work and earning above the Living Wage at any point.
We have excluded those with a spell of full-time education from this analysis, so as not to capture those moving in and out of work combined with study. This also reduces the extent to which these results are picking up low-pay cycling among young people as they first move into the labour market.
The analysis finds that 55% of the non-student adult population, in both the UK and London, are secure workers, in paid work and earning above a Living Wage – the equivalent of 17.6 million UK residents and 2.4 million Londoners.
42 Those who had become unemployed in the previous year were not necessarily previously in low-paid work; however, analysis of the longitudinal Labour Force Survey suggests that the majority of them would have been.
However large numbers of people appear stuck in low pay – 571,000 Londoners (14% of the population) and 5.4 million people across the UK as a whole (17%). Added to this, a further 1.2 million people nationally, 164,000 in London, are at risk of cycling between work and low pay.
Figure 3.4: Snapshot of people’s status in the labour market, London and UK, Apr 2012–Mar 2013
Source: Quarterly Labour Force Survey, Office for National Statistics. Analysis is limited to working age people who are not full-time students.
912,000 6,913,000 203,000 1,432,000 111,00054,000 733,000506,000 571,000 5,406,000 2,358,000 17,635,000 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% London UK Economically inactive
Unemployed, not worked within past year
Unemployed, having been employed within past year
In employment, earning below living wage, moved from unemployment within past year In employment for more than one year, earning below living wage
In employment, earning living wage or above
3.2.1
Those at risk of cycling
It is important to note that the definition of ‘at risk of cycling’ above will in part reflect a normal jobs market, as it captures all of those who move from
unemployment into work (and do not progress out of low pay) and from
employment into unemployment, during the course of the year. So those ‘at risk of cycling’ will include some people who move into low-paid work and subsequently progress, as well as some who move out of employment but do not return. However we believe it represents a reasonable basis for estimating the risk of cycling, as it excludes those who move into work and earn more than the Living Wage within the year (and so likely to be in more secure work) and also excludes students.
On our measure, then, in 2012-13 there were 164,000 people at risk of low-paid cycling in London – 3.9% of the student adult population and 5.0% of the non-student workforce (i.e. not including economically inactive people such as those in education, looking after their family or the long-term sick). In comparison, those at risk of cycling in the UK were 4.8% of the workforce.
Looking at these trends over time, Figure 3.5 below shows that the risk of cycling broadly follows changes in the economy – with high risks in the early recession, improvements in 2010 and a more recent deterioration. The risk of cycling in London appears to be even more sensitive to economic changes: increasing by more than the UK during the recession, but falling more quickly since.
Figure 3.5: Those ‘at risk of cycling’ as a proportion of the workforce, London and UK
Source: Quarterly Labour Force Survey, Office for National Statistics. Analysis is limited to working age people who are not full-time students.
4.0% 4.5% 5.0% 5.5% 6.0% A pr -09 Ju n-09 A ug -09 O ct -09 D ec -09 Fe b-10 A pr -10 Ju n-10 A ug -10 O ct -10 D ec -10 Fe b-11 A pr -11 Ju n-11 A ug -11 O ct -11 D ec -11 Fe b-12 A pr -12 Ju n-12 A ug -12 O ct -12 London UK
There are few surprises on which groups are most likely to be ‘at risk of cycling’, with:
Young people are more than twice as likely to be in this group than the workforce overall – which will partly reflect them ‘finding their feet’ in the jobs market;
People with no qualifications 61% more likely to be ‘at risk of cycling’;
Black, Asian and minority ethnic (BAME) people 46% more likely;
Lone parents 19% more likely; and
Disabled people who are 12% more likely to be in this group than the workforce overall.
This is consistent with what we know about movements on and off benefits. Research in London has found that one in two claimants of out of work benefits return to benefits within six months of leaving.43 And recent DWP analysis has found
that of a cohort of young ‘new’ claimants of Jobseeker’s Allowance, fully 30% had had four or more claims in the previous four years – most of whom had spent more than a year of that time on JSA.44
There are likely to be a range of factors driving poor retention in work and higher risks of cycling in and out of work. The literature suggests that this includes factors around aspirations, motivations and support45, as well as:
The quality of the job match: people in jobs that are a poor match for their job goals and/ or their skills are more likely to leave that job in the first few weeks or months; 46
Barriers that may be encountered as people make the transition into work, including meeting additional financial costs including travel and childcare;47 and
43 Hakeney, S. et al (2009) Staying in, moving up: Employment retention and progression in London, London Development Agency, Labour Market Research Series 01
44 DWP (2013) JSA benefit history and benefit receipt, Department for Work and Pensions ad-hoc analysis
45 Yi Cheung, S. and McKay, S. (2010) Training and progression in the labour market, Department for Work and Pensions Research Report No.680; Holzer, H. and Martinson, K (2005) Can we improve job retention and advancement among low-income working parents?, The Urban Institute, Georgetown University
46 NAO (2007) Sustainable Employment: Supporting people to stay in work and advance, National Audit Office; Hakeney, S. et al (2009) Staying In, Moving up: Employment retention & progression in London, London Development Agency, Labour Market Research Series 01
Peer influences: those with support networks, family and peers in work all appear more likely to then stay in work.48
We can also use the Labour Force Survey to look at the usual sectors of employment for those who are at most risk of cycling between low pay and worklessness. Two areas stand out:
Accommodation and food services (which includes all hotel, restaurant and bar work) in which people are two and a half times more likely to move between unemployment and low pay than the workforce overall; and
Administration and support services (which includes office administration, human resources, tourism and rental activities) in which people are nearly two times more likely to move between unemployment and low pay than the workforce overall.
These findings are broadly consistent with previous research on cycling between being out of work and being in work and in low pay. In particular, research suggests that job quality is an important factor explaining why some people move in and out of work rather than up in work. In a recent study for the Joseph Rowntree
Foundation, interviewing people who had lost their jobs within a two year period, two thirds had started out in temporary work and by the second year of the study, only two fifths had converted this to permanent work.49
Box 3.1 Employers matter, not just occupations
Employers play a key role in determining the structure of the labour market, through the type of business and product strategies that they pursue. A combination of intense competition, demand fluctuations and low value-added activity have led some firms to pursue low value/ low cost product strategies and to compete in a ‘race to the bottom’, which in turn has created demand for low-paid and low skilled work.50 Research suggests however that ‘dead-end firms’ create ‘dead-end jobs’.51 The analysis, looking at German employers, found that small plants and plants with
47 Devins, D. et al (2011) The Role of skills from Worklessness to Sustainable Employment with
Progression, UKCES
48 Graham, J., Tennant, R., Huxley, M. and O’Connor, W. (2005) The Role of Work in Low Income
families with Children, Department for Work and Pensions Research Report No.245
49 Ray, K. Hoggart, L., Vegeris, S. and Taylor, R. (2010) Better off working? Work, poverty and
benefit cycling, Joseph Rowntree Foundation
50 Lloyd, C. and Mayhew, K. (2010) Skill: The solution to low wage work?, Industrial Relations Journal 41(5)
51 Mosthaf, A., Schnabel, C. and Stephani, J. (2011) ‘Low wage careers: Are there dead end firms and dead end jobs?’, Journal for Labour Market Research 43 (3)
high concentrations of low wage workers were more likely to have limited
opportunities for progression. The research suggested that individuals looking to leave low pay needed to leave these ‘dead end firms’ in order to do so.
However, firms can and do pursue different strategies – even in low-paying occupations or sectors. Research in the US has looked at HR approaches within sectors to ascertain if there were synergies in low paying sectors. They found that wage-setting tended to vary, and was closely related to company ethos. Some firms offered high entry wages and low progression while others offered low entry level wages but higher progression.52 Moreover, the research suggested that firms’
growth and turnover were useful indicators of ‘good’ and ‘bad’ employers. Those firms who were stagnating or contracting and had high turnover were more likely to offer lower wages and worse terms. Those firms that were newer and growing, on the other hand, were more likely to offer good jobs and had lower turnover.53
This suggests that even in low paying sectors, successful firms can make good pay and progression part of what they do, without it leading to a ‘race to the bottom’.
3.3
Employment progression in London and nationally
We have used the Labour Force Survey to also measure wage progress
